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India Real Estate Stocks Affected As Bribery Case Widens

India’s top crime investigation agency issued notices to a total of 21 companies as it intensified its probe into a bribes-for-loans racket but ruled out that this is a case of corporate fraud, an agency official said Friday.

“It is not a fraud case…it is primarily a case of bribery and corruption,” said Balwinder Singh, special director of the Central Bureau of Investigations, speaking to reporters outside the agency’s Mumbai headquarters. He didn’t say if the agency would widen the probe to more companies or individuals.

Mr. Singh also said that some companies have already replied to the notices and that the CBI will scrutinize the documents already received before taking the investigation any further.

The CBI Wednesday arrested eight senior officials of state-run lenders, an insurance firm and a financial services firm. The CBI accused the senior officials of allegedly takings bribes from executives of the financial services firm Money Matters Group to facilitate loans to several companies, including property developers. News of the alleged bribery scandal has rattled stock market investors and prompted the government to ask all state-run lenders and insurers - even those not involved in the alleged bribe scandal - to examine their potential exposure to these firms.

The scandal dragged India’s benchmark indexes lower for a third straight day Friday, as stocks of companies and lenders named in the scandal fell sharply. The government tried to calm the jittery investors, with federal Financial Services Secretary R. Gopalan saying the government hasn’t asked banks to cut exposure to the named companies, nor has it asked banks to recall any loans to them.

In New Delhi, Mr. Gopalan told reporters that the government hasn’t instructed banks to cut lending to the real estate sector.

Property developers were the ones to suffer most in the market selloff since news of the scandal broke.

Many of the companies involved in the alleged scandal issued statements to clarify their position in relation to the alleged scam and their ties with Money Matters, but this failed to assuage investor concerns.

Earlier Friday Ajit Gulabchand, chairman of Hindustan Construction Co. – one of the companies that allegedly benefited from the loans– said the transactions with Money Matters had been “very clear, very business-like and syndicated without any special favors.” Speaking on television channel CNBC-TV18 he added that the company will fully cooperate with the CBI.

Religare Enterprises Group Chief Executive Shachindra Nath said he was not aware of any ongoing investigation on the company. Manoj Gaur, managing director at Jaiprakash Associates, said the company has responded to the CBI notice but declined to provide further details.

Meanwhile, LIC Chairman T.S. Vijayan told reporters in New Delhi that V.K. Sharma will has been appointed chief executive of LIC Housing Finance Ltd., a position that is effective from next week. Mr. Sharma replaces R.R. Nair, who was one of the eight people arrested on Wednesday on allegations of taking bribes.

Separately, Prashant Saran, member of the Securities and Exchange Board of India, said the capital markets regulator is committed to protecting investors’ interest.

His remarks followed media reports earlier Friday, which cited an unnamed SEBI official as saying that at least nine companies associated with the bribery case were being investigated for insider trading.

The report named LIC Housing, DB Realty, Central Bank of India, Money Matters, Religare Enterprises, Adani Enterprises Ltd. and Jaiprakash Hydro-Power as among companies that are being probed.